Australian paint giant Dulux agrees to $3.8 billion Japanese takeover

Australia's largest paint manufacturer, Dulux, has agreed to a $3.8 billion takeover deal, which it says is offering one of the highest-ever valuations for a company in the paint and coatings sector globally.

The board of Melbourne-based DuluxGroup told investors on Wednesday it unanimously backed the takeover bid by Japanese paint giant Nippon, via a scheme of arrangement for $9.80 a share in cash and inclusive of a 15¢ interim dividend to be paid by Dulux. The offer was at a 27.8 per cent premium to Dulux's closing price of $7.67 on Tuesday.

Dulux has received a $3.8 billion takeover offer from Japanese giant Nippon Paint.Credit:Viki Lascaris

"We have unanimously concluded that the transaction with Nippon is in the best interests of shareholders," DuluxGroup chairman Graeme Liebelt said.

"It provides an opportunity for shareholders to realise a significant premium to market value for their shares and is on terms that reflect the strategic value of DuluxGroup to Nippon."

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The board and leadership team of the high-performing Australian paint and hardware manufacturer had not been seeking to sell the business, said chief executive Patrick Houlihan. But with an earnings multiple of 16.1 times, Nippon's unsolicited offer made earlier this year was too compelling to overlook.

"From a shareholder view, they have offered the record multiple ever offered for this sector," Mr Houlihan said.

News of the takeover offer sent Dulux's share price soaring on Wednesday, to end the day trading 27.25 per cent higher at $9.76.

From a shareholder view, they have offered the record multiple ever offered for this sector.

Dulux CEO Patrick Houlihan

Dulux, based in Melbourne, has a workforce of 4000 employees and manages a portfolio of brands including Cabot's, Dulux, Selley's and British Paints.

Osaka-based Nippon Paints has 20,000 employees worldwide. It is the largest paints and coatings business in Japan, and the fourth-largest in the world.

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The company has operations spanning Asia, Europe and the US, generating about $7.8 billion in sales for the financial year ended December 31, but has "essentially no operations in Australia or New Zealand", Nippon said.

For the DuluxGroup, Mr Houlihan said: "I really see this as the next chapter".

"When they look at our business here, they want us to continue what we are doing," he said. "They are very focused on what we have."

Dulux management on Wednesday began communciations with its workers about Nippon's proposed takeover bid, including with its workers' union representatives. Due to the lack of overlap between the two companies, Mr Houlihan was confident there would be little if any impact on DuluxGroup's Australian operations and workforce.

Under the proposed takeover deal, described as an "important step" in Nippon's global growth ambitions, DuluxGroup would be run as a seperate division and will retain the Dulux name.

"The combination of DuluxGroup and Nippon will provide further avenues of growth for DuluxGroup and create exciting opportunities for all of the DuluxGroup management and employees," Nippon president and chief executive Tetsushi Tado said.

"Nippon intends to maintain the legacy developed by DuluxGroup and facilitate DuluxGroup's existing vision."

Mr Houlihan said he intended to remain in his role as chief executive of DuluxGroup.

The proposed takeover deal would be subject to the approval of foreign investment regulators in Australia and New Zealand, the companies said.

Despite pressures facing many Australian companies in the building materials sector, such as the cooling national housing market, Dulux on Wednesday said it was more heavily focused towards home renovations and maintenance.